Wills, Trusts & Estates Prof Blog

Non-Residents May Not Benefit from Alaska's New Statute

I recently blogged about Alaska adopting a statute that allows individuals to prove Wills and trusts pre-mortem. As a result, Alaskan estate planners have gotten many calls from non-residents wanting to prevent ugly Will contests like the one surrounding Gary Coleman’s estate.

But will it actually work for non-residents? Delaware probate attorney Peter Gordon doesn’t think so, explaining that a “Utah judge sitting in a Utah court with a Utah resident is not going to send the case to Alaska.”

Unlike a trust (which is a separate legal entity residing in a particular state), a Will is simply a document used by the testator to express his/her wishes.

Thus, the Alaskan statute will be beneficial for resident testators as well as for resident and non-resident trustors. But in most cases, the non-resident testator is out of luck because the Will will still need to be probated where the testator lived.

See Scott Martin, Would the Actors Heirs Have Been Better Off with an Alaskan Will?, The Trust Advisor Blog, June 26, 2010.

Avoiding Malpractice in the Estate Planning Field

The June 2010 edition of The Estate Analyst is comprised of an article by Robert L. Moshman (attorney and writer) entitled Estate Planning Malpractice:  A Best Practices Checklist as well as an interview with Robert G. Alexander, a prominent estate planning attorney and lecturer.    

The introduction to the article and the June 2010 edition of The Estate Analyst is below:

Estate planning and estate administration practice go hand in hand. Each time an estate is planned, there is a potential estate that the practitioner may have an opportunity to serve someday. There is also a potential lawsuit if the estate does not fare well.

Let’s review how an estate planner can best serve clients…while avoiding liability. Several planning scenarios that can lead to difficulty come to mind. A checklist has also been developed to avoid oversights and protect against claims.

A New Website for Information on Elder Issues

The National Center for State Courts (NCSC) launched a new website, http://eldersandcourts.org/, to provide the nation's courts with resources, information, and training related to aging, probate issues, and elder abuse on June 15, which was World Elder Abuse Awareness Day.

The new website also serves as an online clearinghouse of information on aging issues as well as an online community where judges and court personnel can exchange information. The site also features the following resources:

• an interactive map that allows users to access information on specific state laws related to elder abuse and adult guardianships as well as links to state resources on aging
• a database of "promising practices," such as court technologies and administration procedures that have been successfully implemented by courts
• ten training videos that cover topics such as creating an elder justice center, creating an elder protection court, and working with adult protective services
• an elder abuse curriculum designed for presentation by state judicial educators
• the Elder Abuse Toolkit for the Courts, which includes an interagency coordination guide, model practices, a data collection guide, and performance standards (available near the end of 2010)

Confusion Surrounding Regulation R

Regulation R mandates that non-SEC-regulated institutions refer most securities sales to broker-dealers. Not all trust companies are sure they can demonstrate that they’re obeying Regulation R because the Office of the Comptroller of the Currency has not yet issued guidance on how to comply.

If a trust company does too much commission-based business, it can fail the compensation test and lose its exemption from SEC oversight.

Most banks and trust companies are simply referring the business to a certain broker for a fee. The question is how the bank examiners will look at these referral fees when they begin compliance testing on January 1.

For more information, including tips to avoid “red-flag referrals,” see Scott Martin, Feds to Target Trust Firms for Reg R Violations, Trust Advisor Blog, June 12, 2010.

Top SSRN Downloads

Here are the top downloads from April 29, 2010 to June 28, 2010 from the SSRN Journal of Wills, Trusts, & Estates Law for all papers announced in the last 60 days.

Rank	Downloads	Paper Title
1	521	The Generation-Skipping Transfer Tax: A Quick Guide Mark Powell, Chapman University - School of Law, Date posted to database: May 3, 2010 Last Revised: June 15, 2010
2	241	The Costs of Estate Tax Dithering Paul L. Caron, University of Cincinnati - College of Law, Date posted to database: May 3, 2010 Last Revised: May 3, 2010
3	115	What Estate Planners Need to Know About Firearms Gerry W. Beyer, Jessica B. Jackson, Texas Tech University School of Law, Estate Planning & Community Property Law Journal, Date posted to database: April 10, 2010 Last Revised: April 10, 2010
4	89	Technical Correction or Tectonic Shift: Competing Default Rule Theories Under the New Uniform Probate Code Lee-ford Tritt, University of Florida - Fredric G. Levin College of Law, Date posted to database: June 9, 2010 Last Revised: June 20, 2010
5	79	Freedom of Testation/Freedom of Contract Adam J. Hirsch, Florida State University College of Law, Date posted to database: May 13, 2010 Last Revised: June 21, 2010
6	73	The Taxation of Cause-Related Marketing Terri Lynn Helge, Texas Wesleyan University School of Law, Date posted to database: May 8, 2010 Last Revised: June 3, 2010
7	63	Integrating Catholic Social Thought in Elder Law and Estate Planning Courses: Reflections on Law, Age and Ethics Lucia Ann Silecchia, Catholic University of America (CUA) - Columbus School of Law, Date posted to database: May 8, 2010 Last Revised: May 8, 2010
8	56	Video-Recording the Will Execution Ceremony Gerry W. Beyer, Texas Tech University School of Law, Date posted to database: May 18, 2010 Last Revised: May 18, 2010
9	53	Proposed Guidance Under Treasury Regulation Section 1.509(A)-4 Mark Powell, Chapman University - School of Law, Date posted to database: May 3, 2010 Last Revised: May 3, 2010
10	45	Reform Options for the Estate Tax System: Targeting Unearned Income, Testimony Before the U.S. Senate Committee on Finance Lily L. Batchelder, New York University School of Law, Date posted to database: May 11, 2010 Last Revised: June 7, 2010

A Quick Guide for the GST Tax

Mark Powell (Adjunct Professor of Law, Chapman University School of Law) recently published his article entitled The Generation-Skipping Transfer Tax: A Quick Guide, Working Paper Series (2009). The abstract available on SSRN is below:

Sooner or later, every estate planner comes face-to-face with the generation-skipping transfer tax. Many practitioners do not feel up to the challenge because this particular tax as a reputation as being treacherous as the sea. This article helps identify situations that subject clients to the GSTT.

***NOTE: One sentence in the discussion about life insurance trusts is misleading as it was finally edited. The first sentence of the second paragraph in the Life Insurance Trust Issues section should say that if a transfer to an ILIT qualifies for the annual gift tax exclusion, it MAY ALSO be exempt from GST if the trust is drafted the right way. As published, the sentence makes it sound like annual gift tax exclusion gifts automatically qualify for GST exclusion, but it is not automatic. The trust must be designed the right way for contributions to qualify for both exclusions.

State Estate Taxes Uncertain Too

The federal estate tax isn’t the only estate tax that’s unresolved. State politicians have also been putting off decisions.

However, some of the state uncertainty is linked to the uncertainty surrounding the federal estate tax. For example, North Carolina’s estate tax will mirror the federal estate tax when it is resolved. Illinois is in a similar situation, except it may reinstate a tax retroactively for 2010 until Congress makes a decision.

For more information, including a map of which states currently have estate and inheritance taxes, see Ashlea Ebeling, The State Estate Grab, 2010 Edition, Forbes.com, June 9, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.

Five Rules to Help Stretch Out IRAs

These five rules can help you to stretch out the tax benefits of IRAs, possibly for decades:

1. First, do no harm. Don’t take out money or make any changes until you know what rules apply. You must also retitle the IRA.
2. Beneficiary forms rule. The beneficiary form determines who inherits the IRA and its ability to be stretched out. If the estate is named as a beneficiary, tax deferral is cut short. If there is no beneficiary form on file, the IRA custodian’s default policy will rule.
3. Employer plans are different. Some employer plans allow the funds to go straight to the kids if there is no beneficiary form and no living spouse. However, employer plans usually don’t allow nonspouse beneficiaries to stretch out withdrawals.
4. Spouses have more options. A spouse can roll inherited IRA assets into his/her own IRA and postpone distributions until he/she turns 70.5.
5. Watch for distribution traps. If the deceased IRA owner was 70.5 or older, beneficiaries must withdraw the owner’s mandatory distribution for the year before doing anything else.

See Deborah L. Jacobs, Five Rules for Inherited IRAs, Forbes.com, June 9, 2010.

Estate Tax System Reform Options

Lily Batchelder (Professor of Law, NYU Law) recently published her article entitled Reform Options for the Estate Tax System: Targeting Unearned Income, Testimony Before the U.S. Senate Committee on Finance, NYU School of Law, Public Law Research Paper No. 10-29; NYU Law and Economics Research Paper No. 10-24 (May 7, 2010).

The abstract available on SSRN is below:

This testimony makes three main points. First, inheritances tend to exacerbate existing economic disparities and may be the most important barrier to intergenerational economic mobility. These tendencies are most pronounced at the top of the income distribution. While inherited income is distributed fairly evenly across most of the population, it rises sharply at the very top.

Second, the estate tax system is the most important mechanism by which the current fiscal system mitigates the effect of inheritances on economic disparities and intergenerational mobility. The burden of the estate and gift taxes falls largely on heirs, not donors. Moreover, on average, it rises rapidly with the amount the heir inherits and his economic income. Nevertheless, the relationship between the heir’s financial circumstances and his or her estate tax burden is relatively imprecise.

Third, upcoming legislative changes create an opportunity to better focus the estate tax system on the unearned income that inheritances represent. We should use that opportunity to reform, not repeal, the estate tax system so that it continues to tax inherited income but in a more equitable manner. Two reform options are discussed. The first would replace the estate tax system with a comprehensive inheritance tax, under which heirs would pay tax on extraordinary amounts of inherited income at roughly the same rate that presently applies to earned income under the income and payroll taxes. The second would retain the estate tax but better focus it on the amount transferred as a proxy for the amount received. It would do so through a package of simplification reforms that would limit the extent to which the tax burdens on heirs depend on their access to sophisticated tax advice.

Banks Provide Elder Care

Private banks and trust companies are increasingly helping older clients manage their financial affairs. Banks with elder services programs will do things like manage crises, sort out medical bills, manage the sale of a home, manage Medicare-coverage claims, or hire in-home care for their elderly clients.

The banks and trust companies that offer such services get something out of providing these services as well, possibly including:

• Increased asset management fees
• Providing an incentive for clients to move more assets to their institution to qualify for the services
• A long-term, loyal relationship with the client as well as the younger generations of the client's family

For more information, including examples of banks helping out their elderly clients, see Kelly Greene, Beyond Estate Planning: Bankers Tackle Elder Care, W.S.J., June 26, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.

L’Oréal Heiress' Financial Affairs Revealed

Long-serving butler of Liliane Bettencourt, 87-year-old L’Oréal heiress, recently released tapes that he privately recorded over the course of a year. The tapes reveal Liliane’s relationship with her long-estranged daughter, Liliane’s relationship with photographer Francois-Marie Banier, and political connections cultivated by the managers of her $20 billion fortune that now threaten President Nicolas Sarkosy’s economic reforms.

Liliane’s daughter has filed a complaint against the photographer, accusing him of taking advantage of Liliane to extract gifts worth over $1 billion. Next week, the court case should reveal whether or not the world’s 17th wealthiest person is unknowingly being robbed of her fortune.

Liliane sees the tapes as an extreme invasion of privacy and is suing everyone who played a role in recording and disseminating them.

For more information, see Scheherazade Daneshkhu, France: Because She’s Worth it, Financial Times, June 25, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.

Jackson's Father Files Wrongful Death Action

Michael Jackson’s father, Joe Jackson, has filed a wrongful death lawsuit against Dr. Conrad Murray, the doctor charged with giving Michael a fatal mix of sedatives. Joe’s complaint seeks more than $75,000 in damages and alleges that the doctor was negligent.

As for the involuntary manslaughter charges, Dr. Murray has pleaded not guilty. The criminal trial is expected to begin next year.

In the meantime, Michael’s fans paid him tribute around the world on the one year anniversary of his death. There was a tribute to Michael at the Beverly Hills Hilton hotel, a memorial service outside Michael’s childhood home, a gathering at the Los Angeles cemetery where Michael is at rest, and much more.

See Michael Jackson’s Father Files Wrongful Death Suit, BBC News, June 25, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.

Withdrawing a Feeding Tube is Now Legal in Germany

An attorney in Germany was suspended for nine months for advising a daughter to cut off her comatose mother’s feeding tube. The Federal Court of Justice overturned that ruling and acquitted the attorney.

Germany’s Justice Minister, Sabine Leutheusser-Schnarrenberger, said that this ruling clarifies cases involving terminally ill patients. Removing artificial life support is now legal in Germany if the patient gave clear consent. However, active assisted suicide is still illegal.

See German Court Legalizes Euthanasia with Patient Consent, BBC News, June 25, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.

More on the Billionaire's Estate Tax

Independent and Democrat Senators proposed an estate tax plan on Thursday, which I previously blogged about in detail.

What I didn’t mention, however, is that this proposal would be retroactive to January 1, 2010. The heirs of Dan Duncan (previously-mentioned Texas billionaire) will surely challenge the retroactive law, which would subject the majority of Duncan’s estate to a 65% rate.

Another option, proposed by Senators Lincoln (D-AR) and Kyl (R-AZ) would not be retroactive. This plan provides for a $3.5 million exemption and a 44% rate for anything on top of that. After a 10-year phase-in period, there would be an exemption of $5 million and a 35% rate.

See Laura Saunders, Sanders Estate-Tax Proposal Would Hit Wealthy Harder, W.S.J., June 25, 2010. See also Janet Novack, Three Senators Call for Billionaire Estate Surtax, Forbes.com, June 24, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.

Jackson's Estate Might Surpass Presley's

As I previously blogged, Michael Jackson’s estate grew tremendously in the past year since his death. Experts in the management of celebrity estates are waiting to see whether or not the Jackson estate will surpass the ultimate entertainment estate: Elvis Presley’s estate. Presley’s estate earned $55 million last year.

Last year, Jackson’s “This Is It” movie grossed $261 million and he sold almost 8.3 million albums. Jackson was also inducted into the Apollo Theater’s hall of fame last week. Jackson became a saint the second he died, and his estate managers have been able to profitably yet tastefully take advantage of the emotion surrounding his tragic death.

Whether or not the Jackson estate can continue to prosper is undecided. Bob Lefsetz, a former entertainment lawyer, said that without a Graceland-style attraction, Jackson’s Neverland ranch will be sold and his sales will eventually slow. Others disagree with Lefsetz and think that the Jackson estate will continue to grow throughout the years, just as Presley’s estate has.

See Ben Sisario, A Year Later, Jackson Estate is Prospering, N.Y. Times, June 22, 2010.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention. 

Coleman Chose Between the Two Women Who are Now Fighting for His Estate

Randy Kester, Coleman’s attorney, says that Coleman was forced to choose between Anna Gray and Shannon Price while he was alive. As I previously mentioned, these are the two women who are currently fighting to be executor of Coleman’s estate.

Anna worked with Coleman as his manager before becoming romantically involved with him and eventually living with him. Things got uncomfortable when Price entered Coleman’s life and demanded that he make a choice, so Anna moved out but remained Coleman’s friend.

Anna was surprised to find out that Coleman had named her as executor in his 2005 Will. If Price is unable to prove common law marriage, the 2005 Will will prevail, and Anna will be the executor of Coleman’s estate.

For more information, including a video of the interview with Randy Kester, see Exclusive Video Interview:  Gary Coleman Forced to Pick Between Two Women Now Fighting for His Estate, RadarOnline.com, June 24, 2010. 

Indiana State Bar Association Wins Unauthorized Practice of Law Action

A summary of State ex rel. Indiana State Bar Ass'n v. United Financial Systems Corp., 926 N.E.2d 8 (Ind. 2010) is below:

In October 2008, the Indiana State Bar Association filed an action against United Financial Systems, an estate planning services company, alleging unauthorized practice of law. In April, the Indiana Supreme Court ruled in favor of the Bar Association.

The Court found that United’s business model made the attorney’s role in preparing wills and trusts so minimal that it crossed the line of permissible practices. The fact that some customers may have received legally effective estate plans does not make United’s conduct legal.

The Court ordered United to pay the Bar Association certain statutory attorney fees (associated with defending against United’s baseless argument against the Bar Association) as well as costs and expenses. The Court also ordered United to notify all of its Indiana estate plan customers about possibly receiving a refund.

Special thanks to Ronald Volkmer (Professor of Law, Creighton University School of Law) for bringing this to my attention. 

Elder Law CLE

The University of Texas School of Law is hosting the 12th annual Estate Planning, Guardianship and Elder Law Conference in Galveston, TX on August 12-13, 2010. The overview of the program is below:

The 2010 Estate Planning, Guardianship and Elder Law Conference. This program offers practical tips and advice for estate planners and elder law attorneys, essential information for guardian ad litems, and a must-have set of materials and resources.

Program highlights include the 2010 Estate Planning Case Law Update; an overview of Medicare Facts and Questions including Expedited Appeals; advice on handling Contested Guardianships; updates from HHSC; and an Ask the Experts panel. Don’t miss this important program.

Estate Planning, Guardianship and Elder Law Conference is part of UT Law's Summer Conference Series, both informal and informative. Participants are invited to dress casually and bring the family.

Responsible Estate Tax Act

Paul L. Caron posted a blog on the TaxProf Blog on June 24, 2010 entitled Responsible Estate Tax Act Includes $3.5m Exemption, 55% Top Rate & 10% Billionaire's Surtax.  The blog summarizes the Responsible Estate Tax Act (RETA) and is below, in full:

Senators Bernard Sanders (I-VT), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI) today plan to introduce the Responsible Estate Tax Act, which would provide a $3.5 million exemption, a progressive rate structure with a 55% top rate, and a 10% surtax on billionaires:

• Exempts the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Doing this would mean that 99.75% of all estates would be exempted from the federal estate tax in 2011 alone.   
• Includes a progressive rate structure so that the super wealthy pay more. Under our bill, the rate for the value of the estate above $3.5 million and below $10 million would be 45%, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50%, and the rate on the value of estates above $50 million would be 55%. 
• Includes a billionaire's surtax of 10%. Our bill also imposes a 10% surtax on the value of an estate above $500 million ($1 billion for couples). According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion. Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others. 
• Closes all of the Estate and Gift Tax Loopholes requested in President Obama's Fiscal Year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes; a modification of rules on valuation discounts; and a required 10-year minimum term for Grantor Retained Annuity Trusts (GRATS). OMB has estimated that closing these loopholes that benefit the super-wealthy, would raise at least $23.7 billion in revenue over 10 years. 
• Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to $1 million for estate tax purposes under § 2032(a) (Special Use Valuation). Our bill increases this level to $3 million and indexes it to inflation.  
• Benefits farmers and other landowners by providing estate tax relief for conservation easements. Our bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60%.  

Special thanks to Peter Parlapiano (2011 MBA/M.S. PFP candidate, Texas Tech) for bringing this blog to my attention.

Revocable Trusts in Florida

Donna Litman (Professor of Law, Nova Southeastern University) recently published her article entitled Revocable Trusts Under the Florida Trust Code, 34 Nova L. Rev. 1 (2009).

The synopsis is below:

Revocable trusts are a special type of inter vivos trust under Florida law that can be used effectively for some clients and some assets. This article explores revocable trusts under the Florida Trust Code, considering the important provisions and elements of a trust in general and of revocable trusts in particular. This article compares the provisions of Florida law and the Uniform Trust Code, as well as legislative history, and raises questions that have not been addressed by the Florida Trust Code. It considers which assets are appropriate for revocable trusts. The article also discusses important provisions for planning and drafting revocable trusts to administer and marshal assets during lifetime, to provide an alternative to guardianship, and to dispose of assets on or after death in conjunction with a will.